Chinese Premier Wen Jiabao delivered a blunt reminder of his country’s power over the US after he warned President Barack Obama against recklessly spending his way out of the recession and said he was “worried” about the trillions in US-backed securities that China owns.
With nearly $2 trillion in foreign securities, most of which is US-denominated debt, China is fretting that Uncle Sam’s bailout depends too heavily on printing huge piles of new dollars and borrowing record amounts from China, which in turn could spark inflation and sink the value of the US debt China already owns.
“Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried,” Wen told a news conference following the close of China’s annual legislative session. “I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets.”
Wen’s message yesterday came just days ahead of a global economic summit, where China wants to address fears about its direct holdings of US debt and currency.
Obama’s recovery plan is expected to flood world markets with newly printed greenbacks and record amounts of US Treasury securities, which Obama hopes China will continue to buy.
The bloated US debt and currency supply, however, could cause the greenback to fall sharply and upset China’s US-linked assets.
“Inside China there has been a lot of debate about whether they should continue to buy Treasuries,” said Frank Gong, chief China economist for JPMorgan.
“China is telling the US to be careful, not to overspend and keep an eye on the dollar,” said economist Kelvin Lau at Standard Chartered in Hong Kong. “There are risks that China cannot control, so they’re depending on the US to maintain fiscal prudence and keep the dollar reasonably stable.”
To be sure, China has few options at its disposal if it wants to exert influence over the US government. There are few alternatives in the world to US-backed debt, and any big sale of its holdings would only devalue what China currently owns.
The issue is expected to come to a head April 2 when President Obama meets with Chinese President Hu Jintao and other leaders at a London summit of the Group of 20 major economies.
In Washington, White House press secretary Robert Gibbs publicly assured Wen that the Chinese should take comfort in knowing their investments in the US are the safest in the world.
Meanwhile, China’s warnings failed to produce any immediate repercussions yesterday in the Treasury markets. Treasuries were flat after the US sold a record $34 billion of three-year notes, $18 billion in 10-year notes and $11 billion in 30-year bonds – $63 billion in all. paul.tharp@nypost.com